As part of their customer due diligence obligations, banks and financial institutions must establish whether their clients are Politically Exposed Persons (PEP) and at risk of being involved in financial crimes, like money laundering. Politically Exposed Persons fall into several categories and while many are politicians, or hold governmental positions, others may qualify for PEP status because of their connection or proximity with another individual. In this context, PEPs may also be known as Relatives and Close Associates (RCA).
What are Relatives and Close Associates (RCAs)?
Relatives and Close Associates sometimes referred to as ‘PEPs by association’ are a type of politically exposed person who shares a family or friendship connection to a PEP. As outlined in FATF guidance, that connection may be a direct family relation or a connection through marriage (or civil partnership). Alternatively, it may be a social or professional association. The list of people who may qualify as RCAs includes:
- Spouses and partners
- Uncles, aunts, cousins
- Spouses/parents of children
- Close friends
- Legal advisors
- Business associates
RCAs may also be joint beneficial owners of an entity in which a PEP has an interest, or may be the sole beneficial owners of an entity set up for the benefit of a PEP.
RCA Screening and Monitoring
Financial institutions must monitor RCAs as part of their AML/CFT screening process because of the tendency for friends and family to be involved in, or drawn into, financial crimes perpetrated by others. To deal with the risk posed by RCAs, screening should take place at the start of the business relationship, and periodically throughout the relationship via ongoing monitoring. Ongoing monitoring is important as financial institutions must be able to react quickly should the risk exposure of a PEP or RCA change.